Over the past several years, the Irish Government has expressed growing concerns regarding the strain on the state pension fund, fueled by a steadily expanding population and increased life expectancy.
Currently, only 60% of private-sector employees have pension schemes. To address this concern, the government is set to implement an Automatic Enrolment Scheme in September 2024. This initiative will require businesses to align with pension contributions for their employees.
Who is being auto-enroled
Employees in Ireland who:
Employers are legally obliged to provide access to at least one standard PRSA within 6 months of them beginning their employment with their employees. However, at the moment there is no obligation on employers to make any contributions on the behalf of their employees.
What You Need to Know About the Auto-Enrolment Scheme?
Auto-enrolment will target employees who meet certain criteria, such as age and earnings thresholds. It is expected that employees aged 23 to 60 who earned over 20k will be automatically enrolled in the scheme unless they are already contributing to another pension scheme.
Auto-enrolment contributions will gradually increase over a period of 10 years from when the system is introduced. Phasing in contribution amounts on a staged basis will allow time for savers to adjust to the contribution rate.
What the Auto-Enrolment Scheme means for Employers
Auto-enrolment: Employers will be required to automatically enrol eligible employees, who do not already have a pension scheme, into the auto-enrolment pension.
Contributions: Employers will be required to make contributions to their employees’ retirement savings accounts. Contribution rates will be phased in so that employers and employees are given time to adjust to the system.
Benefits for Employers
- Not having to pay to set up a company pension scheme
- Employer contributions will be deductible for corporation tax purposes
- Increased competitiveness and attractiveness as an employer
- Ensuring that employees are looked after
- Not having to administer a company pension scheme
- Contribution rates will be phased in so that employersand employees are given time to adjust to the system
What the Auto-Enrolment Scheme Means for Employees
Opting out: Employees will have the option to opt out from the auto-enrolment scheme if they wish to do so. By opting out, they will be exempt from making contributions, and their employer will discontinue contributions on their behalf. Employees must remain in the scheme for a minimum of 6 months and are free to opt–out after that. Those who choose to opt out will be automatically re-enrolled at a subsequent date.
Contributions: How much the employee automatically contributes will be determined as a percentage of their gross earnings (up to €80,000) starting at 1.5% and increasing to 3% in year 4, to 4.5% in year 7 and 6% in year 10.
Benefits for Employees
- More money in retirement.
- Contributions will be boosted by matching employer contributions and state top-up.
- If employees move jobs they can keep paying into the same account.
- Employees won’t have to make an investment decision as there will be a default fund.
- Employees will be able to view their account on an online portal.
- Contributions and investment returns will be the employee’s property, protected under the Constitution and therefore cannot be accessed by anybody else the large number of participants and money that will accumulate in the system over time will ensure that shared costs and fees can be kept to a minimum.
How Can Employers Prepare?
Although it is still not confirmed when this will commence and when the supporting software systems will be available, it is important for employers to get pension smart early:
1. Understand the legislation – Familiarise yourself with the Automatic Enrolment Retirement Saving System Bill 2022 and requirements around auto-enrolment. Know statutory contribution rates, eligibility criteria, opt-out rules etc.
2. Review employee records – Audit your workforce to identify which employees will be automatically enroled and need to be informed. Make sure contact details are up to date.
3. Communicate with employees – Ensure staff are informed about auto-enrolment in good time. Explain the benefits, opt-out process clearly if they don’t want to join. Address any potential concerns.
4. Update payroll systems – Check your payroll software can handle automatic pension deductions and employer contributions as required by law. Arrange for data transfers with the pension provider.
5. Create joining processes – Develop procedures for new hires to join the pension scheme upon auto-enrolment. Handle opt-outs seamlessly.
6. Plan for ongoing administration – Consider the ongoing processes needed to ensure compliance like contributions, opt-ins/outs, records retention etc.
7. Identify a point of contact – Appoint someone to oversee auto-enrolment preparation, act as liaison for employees and pension provider.
For more information, you can the full government guidelines here.